Morning, everyone. Thank you for being here today. I'm Singh, Senior Research Analyst at RBC, and I'm very pleased to have Tandem Diabetes Care here with us for RBC's 2025 Global Healthcare Conference. Joining us from the company is Leigh Vosseller, Executive Vice President, CFO, and Treasurer, as well as Susan Morrison, Chief Administrative Officer. Thank you so much for being here, Leigh and Susan. Really appreciate it.
Yeah, thanks for having us here today.
Great. Before we kick it off, maybe, Leigh, I'll hand it over to you for any opening comments.
Sure. I mean, I guess what I'll say is we're really excited about how we started 2025. It was a really strong first quarter with great demand for our pumps worldwide. Pump sales were strong. Supplies were particularly strong with high utilization, also strong retention of our customers. We saw price improvement in the U.S., mostly from our DME initiative, but also even some from our pharmacy initiative. I think what's important about this year, there's a lot of things going on that are very exciting for the business. We often have talked about how products, new products, new product innovations are important to our growth. This year, we're also demonstrating there are other ways to see a pathway to growth for Tandem, which includes expansion of our market.
Doubling the size of our market in the U.S. with the type two indication that we have, as well as business model opportunities when you think about the pharmacy where we're building access and preparing for going direct outside the U.S. in future years. I think Q1 is a demonstration of the building blocks or the steps towards those, taking advantage of those initiatives and underscores what opportunities exist for the business.
Great. Thank you so much. Maybe we can kick it off with Q1 earnings, you know, 6.5% upside surprise, you know, like you indicated, very strong quarter, 22% year over year growth and 28,000 new pump shipments. Just maybe we can kick it off with U.S. pump shipments. You know, what I noticed was that new starts were on a stack to year basis, to year growth basis. It was down year over year, but renewals were up year over year. Can you maybe walk through some of the dynamics between new starts as well as renewals in the quarter?
Sure. What we saw and what we expect to see this year is that, first of all, the breakdown for pump shipments between new and renewal in the U.S. is going to be roughly 50/50. Our business has really evolved in the last couple of years where we used to talk about it on a new start basis that half were coming from MDI conversions, half from competitive conversions. What we are seeing now is with our Mobi product in particular, we are really driving growth with the MDI conversion opportunity. The competitive conversion opportunity has been declining for us. It was something that we anticipated in our models. That is a bit of a shift in dynamics that we expect to see going forward. Right now we are seeing that continued growth in MDI really more than offsetting the decline in competitive conversions.
Got it. Maybe can you elaborate on the MDI opportunity? You know, again, you saw double-digit growth for the fourth quarter in a row. You know, really strong trends there. Can you maybe elaborate on the opportunity? You know, what is, how many folks are out there, you know, to be converted?
Yes, yes. That's a great question. It speaks to the market being so underpenetrated. Let's call it roughly a million people living with type one diabetes in the US, only about 40% use pumps, which means 60% of people are the opportunity for us to continue to grow the business. Mobi has really been doing its job. It has been the primary contributor to returning to that double-digit growth with MDI conversions. We also, as I mentioned earlier, focus on things like pharmacy as an opportunity to drive that expansion. One of the number one barriers to adopting pump therapy is cost. Particularly with a DME pump, it's very costly upfront. With pharmacy, we can help overcome that by using the way we negotiate our contracts, but also using copay assistance to help patients with that out-of-pocket cost that they have.
Got it. Can you maybe, I do not know what you are willing to share in between the mix of Mobi versus t:slim, you did call out that Mobi is driving MDI conversion. Any further color you can provide on that mix would be helpful.
Yeah, I know everyone wants to know, but we aren't sharing that breakdown between Mobi and t:slim, and mostly because we want people to think about us. It's a portfolio sell. It's not necessarily one product or the other that brings people to the table. It's the Tandem brand. We give people that choice. Mobi has been gaining traction as we just discussed. It really is a driver behind MDI expansion. Resonates well in the pediatric community. It also has resonated well with the patch configuration. We did see a noticeable increase in competitive conversions when we launched Mobi at that time, but mostly for the MDI population.
In type two, anything on mix you can share? I know you guys are just getting started on that, but what was the mix in Q1?
Sure. It has pretty consistently been about 5-10% of our new pump starts each quarter. That has been the number historically. We are just kicking off our commercial efforts associated with type two now. We will see what that looks like and how that increases on the go forward.
Got it. Supplies, you know, it's about 55% of your mix and I don't want to, it's recurring revenue. So, you know, that's a very important part of the business. Can you maybe talk about trends in retention and utilization?
Yes. Worldwide, we have close to 500,000 people on our product. It does create a very strong supply stream for us. What we've seen is we've seen really great retention of our customers. Both within warranty, people that try our product and stay with us all the way through their warranty cycle, and many people who, outside of warranty, just stay on the product. The product is so reliable that they can use it for years beyond their warranty expiration. Those retention trends have been very strong. We also, in the first quarter of this year, saw a noticeable improvement in customer utilization. That just means consistency with using the product and the ordering of supplies, which benefited us in the first quarter in particular.
Got it. You have provided guidance for Q2. Are you tracking, you know, towards that? Anything you can share on April, May trends?
We're not sharing any intra-quarter trends, but we still are very confident in the guidance that we put out there. I think one thing I can highlight, you know, there are the usual parts that move in the business. We have the normal seasonality where you see pump shipments step up from Q1 to Q2 in the U.S. as more people start meeting their deductible. The other element that's driving the scale of the business this year, as we step out of Q1, we did a Salesforce expansion at the beginning of the year, and we'll start to see those new territories build in productivity. We don't expect they'll reach full productivity for nine to twelve months, but that's contributing to some of the Q1 to Q2 dynamics.
Got it. So we should expect a sequential step up from Q1 to Q2.
Yes, that's correct.
Fair enough. Let's talk about some of the catalysts because you have multiple catalysts at play, starting with the type two opportunity. You know, it does double the addressable market. So it's a massive opportunity. Can you maybe talk about what you are trying to accomplish in the initial phase? I think you also said it's going to be a cautious and measured rollout approach for the type two market. You know, what does that mean in terms of timings for a full launch?
Sure. Maybe to start with some numbers on the type one side, there's actually nearly 2 million people living with type one diabetes in the U.S. There's just over 2 million people living with type two diabetes in the U.S. who are insulin dependent. There's a much higher number that use some sort of insulin, 5-6 million, but our target market is more of that 2.3 million living with type two. Of that population, only 5% use a pump today. The opportunity is incredible. It is a different population, though, than marketing to someone living with type one. There's a different level of history with the disease. There's a different level of numeral literacy because people aren't as familiar with describing insulin to carb ratio or what are your blood glucose levels the same way that someone who grew up with the disease may.
It is a different population. How we market to that group, how we train that group, how we work with the healthcare providers to educate them on who are the appropriate qualified candidates basically for pump therapy, those are what we are focusing our commercial efforts on now. We are doing it at a smaller scale to better understand and inform what should the investment be and what should our efforts be behind those going forward. The thing that really benefits us is we had the recent publication in the New England Journal of Medicine. That is actually the fourth time that our Control-IQ algorithm has been featured in the New England Journal, which is incredible. This time it focused on type two. With that, we were able to show that you could use fixed dosing.
It was requiring less from the patient to get those same levels of outcomes. It was also doing things like the startup time, this ease of onboarding, allowing people to only enter their weight and their total daily insulin use. Those are all features that really help us as we work to penetrate the type two market. It is going to build over time.
Any color on timing for the full launch?
That's what we're going to use this information to inform us on. Stay tuned.
All right. Got it. You know, I think you've alluded to the fact that there is something factored into the 2025 guidance for the type two opportunity. You know, any final point you can put out there?
What I can say is this, not just the type two opportunity, but the pharmacy expansion and new product introductions. We only included a modest benefit this year. We like to see the data. We like to develop the trends before we think about how to further inform guidance. Initially at this point, just a modest amount in mostly back half of the year.
Got it. You know, as we think about the type two opportunity, any sense of where you could get to in terms of penetration? Also, thinking about GLP-1s, you've actually indicated that GLP-1s and Control-IQ is synergistic. Yet there seems to be a cap on the type two market opportunity. Can you parse that out for us?
Sure. Back to that breakdown of who are really our pump therapy candidates, that 2.3 million, those are folks who are insulin dependent. They are often using a GLP-1 today, and they can be using hundreds of units of insulin today. That New England study that I mentioned, they actually demonstrated that people have the best A1C when they're using a GLP-1 in combination with Control-IQ. They are really synergistic. I would not think of them as independent therapies. When someone gets to that stage of the disease, they need to have multiple layers within their therapy management. We are seeing the combination really give the best outcomes.
Do you think you can get to the entire 2.3 million patients?
No, I'd say that there's going to be steps along the way. There's always going to be barriers for adoption. Again, it starts at 5% today. Even in our market research, when we ask people, are you considering pump therapy, more like 25% say yes. I think that's a big step up from what we've seen in historical years. I attribute that to adoption of CGM. As people are getting greater information about their blood glucose and their blood glucose trends, then what are you going to do about it? That's where pump therapy comes into place. I think the ease of use of the technology is at a stage that it's really opening up the opportunity for greater adoption.
Got it. I guess moving on to Mobi and the pharmacy channel, that was a big upside surprise, you know, in terms of the mix in the pharmacy channel that you guys talked about at 30% versus 20% previously. You know, can you maybe just elaborate on the approach to getting customers onboarded? You know, how should we think about the economics on sales and margins? I think that's a big question for investors to think about DME versus pharmacy. If you can parse that out, that would be helpful.
Sure. I'll start by saying we're very pleased with our pharmacy progress so far. We only put very small volumes through in the first quarter, but to have 30% of US lives covered is a great starting point for us this year. As we're looking ahead to what this can do from a business perspective, I think what's really good is we've answered the question of can a durable pump be sold through the pharmacy channel. We can put that behind us now and people can understand there's a real opportunity here. We also feel really good about the contracts that we've negotiated. The pharmacy channel offers a new opportunity to think about a different business model, if you will. Our contracts to date very much look like a DME contract with reimbursement for the pump separate from the ongoing reimbursement for the supplies.
No disruption as you think about us stepping into the pharmacy channel. It does provide us price benefit versus what we see in DME. We have not quantified it, but it does give us that opportunity to have price premium, improve gross margins and operating margins as well. This year it is about really expanding into that space. It is how do we identify the patients? How do we steer them towards the pharmacy channel? Everyone with a Mobi order that comes in the door, we check their benefits. We make sure we pick the channel that is the most beneficial to the patient. Even though we had only small volumes in the first quarter, we are just getting going. It is more about operationalizing than it was about driving the volumes through it. We still did see a meaningful price benefit that came from that.
While the majority of our price increase in the U.S. was from DME, those small volumes of pharmacy did contribute as well.
You're not willing to quantify that?
Not at this time.
Okay. All right. As you think about your 65% gross margin target, you have indicated that Mobi is going to, you know, get you half the way there. So that's about 700 basis points. How much of that benefit do you expect in 2025 from Mobi?
This year, as we set the guidance for this year, you're seeing gross margin expansion. In 2025, that's mostly coming from the Mobi pump. Keeping in mind the Mobi pump compared to t:slim X2 has a 10-15% lower manufacturing cost. We're starting to realize that this year. The cartridge has about a 20% lower manufacturing cost than t:slim X2, which we'll begin to realize in 2026. It's going to be a multi-year getting Mobi up to scale to start to realize its full potential. To your point, it does get us more than halfway to the 65% mark. I'll bring pharmacy back into the conversation with Mobi and the pharmacy channel that gives us incremental opportunity.
When we looked at those together and we saw the traction and that early information that we have from the first quarter from pharmacy, that gave us the confidence to share that a milestone towards our 65% target, which is we could see a path to 60% gross margins as early as 2026. I think that's pretty meaningful because people were believing it was many years away. It's much closer than I think people anticipated.
Yeah, no, absolutely. With respect to CGM integration, can you maybe, you know, I guess first we talk about the 15-day sensor for G7, you know, when is that integration? And do you expect that to drive incremental, you know, adoption?
Sure. We are working very closely with Dexcom so that we can have that sensor available when it launches. As adoption is gained by the sensor driven by Dexcom, we do benefit and we do draft off of that. I am looking forward to more people adopting their technology and that we can have more people adopt pumps also.
How should we think about this step up? You know, I mean, if you add the opportunity here, it's almost like 10 million patients, you know, globally that are either with Abbott or Dexcom on the CGM side. That's a huge opportunity for you. As you do the integration and you've called out, you know, certain quarters where you're looking for that integration, how should we think about the step up in growth? Is there a step up in growth post those integrations?
Yeah, the opportunity is meaningful. We just touched on Dexcom and I'd highlight with Abbott, there's even fewer of their sensor-using patients who use pump therapy today. That is a very large and under-penetrated market also. As we think about it on the go forward and how does this factor into our guidance, to Leigh's point, we still include very little catalyst assumptions there and we're leaving that for upside and for longer-term growth.
Historically, have you seen a step up when you do get integration in a certain quarter? When do you see that benefit, or is it more gradual?
It's something that builds over time.
Okay, understood. You know, I guess on renewals, I just wanted to get your sense of, you know, do you think the street is factoring in the renewal opportunity appropriately, you know, especially internationally as we go into 2026 as well?
Yeah, I think that when for the U.S., let's start there for a second. I think we have some pretty well-established trends that people are understanding. That's that we get to about a 70% capture rate within about 18 months of when people's warranties expire. It did take many years to build up to get to that point where it became, I would say, a more reliable trend in that regard. As we look ahead for our OUS business, we haven't seen really much contribution from renewals. I think people are trying to understand, well, when does that start? What we can say is in 2025, it's starting to become a more meaningful piece of the business. Where most of our shipments outside the U.S. have been to new patients, this year we're starting to really see those trends emerge.
It will take time to build to that routine that we see in the U.S., but we're beginning now.
Got it. I guess just moving on to guidance, you know, obviously I've asked you this question many times. You have a very different guidance philosophy. You guys provide a base case and then you add up to it. Q1 was a great quarter. You know, why didn't you at least raise the guidance by the amount of the Q1 beat? Are you building in a cushion somewhere? Like how should we think about it? And then also, as I look at the outperformance, I think if I look at 2024 as well as Q1, it seems like you've, you know, outperformed expectations by, you know, at least about 700 basis points. So is that how we should think about upside to 2025 guidance?
I would say it's not that formulaic. I'll start with that. When we set guidance expectations, we really lay out all of the opportunities and the risks. At the beginning of the year, we have many months ahead of us. We definitely err more on the side of the risks. We want to see how things play out before we build in too much of the opportunity piece of it. Q1 was really strong and we were very pleased with that performance. This year, one of the risks in the market is really outside of our control. It's what's going on in the macro environment and how that may or may not impact customer purchasing decisions.
We thought at this time, even with the strong performance, we still feel very confident in the guidance we had already set that it did not make sense right now to raise. We want to just make sure we monitor what is going on in the markets, again, with the pieces that are more outside of our control and see how things play out in the coming quarters.
I mean, there's a pretty significant step down in growth from Q2 to Q4. It's about 7% versus almost 22% that you did in Q1. So, you know, I guess just from a messaging standpoint, you know, it could appear to investors that you may have low visibility versus just being conservative. How do you walk that line?
Yeah, great question. What I should explain are a couple of the factors that are built into the back half of the year more so. I'll point to our markets outside the U.S. First of all, the first quarter benefited by about $5 million in sales that our distributors had originally forecasted for the second quarter. That was a timing shift into Q1, which contributed to that higher growth rate. Also outside the U.S., as we're preparing to go direct in certain markets in 2026, we factored in a $15 million-$20 million sales headwind this year that will come to fruition in the later part of the year. What that does is it assumes as we get closer and closer to going direct, our distributors are going to be winding down their inventories.
It is going to create a sales headwind in the interim until we take over the business ourselves. We factor that in. Those are two big pieces that contribute to why the growth rate looks lower in the later part of the year. The other piece I'll add is that in the U.S., we were launching Mobi last year. It was not on the market for a full quarter until the second quarter. We launched it with G7 in June. We were seeing some scale-up there as well, which contributes to, you know, a stronger baseline, I would say, when comparing growth rates.
Got it. Just I guess longer term, you've talked about getting to 25% operating margins at 1 million customers. Is that outlook still intact? You know, it's interesting. I think at some point you guys indicated you could get there in 2027 and then obviously a lot moved, but consensus doesn't even have you there through the end of the decade, through 2030. Do you think that could prove conservative?
When we set those guidelines, we said at about a million customers, we could get to 65% gross margins and 25% operating margins. Since then, with some of the elements of the business, as we talked earlier about Mobi, the complement of pharmacy, we see a path to getting to 60% as early as 2026. That gross margin, we've said now, we can get there earlier than a million customers. We have not given a new time point yet. That is the biggest contributing factor to the operating margin improvement as well. When you think about that piece, as gross margin moves, we are going to see a nice benefit on the bottom line.
The other piece of that unrelated, I would say, to the sales growth trajectory and the gross margin improvements would be some initiatives that we have underway to make our operating base more efficient. Up until the last few years, as we've grown our install base, we've ratably added employees to support them. In terms of taking customer orders, in terms of taking customer calls for technical support, ongoing supply orders, it takes a large amount of people to maintain that high customer satisfaction with some of our more manual processes. What we're going through right now is we're automating more of our processes than we had in the past, also looking at how we can enhance and improve our systems to support.
Saying all that, what I'm pointing to is the fact that we should see great leverage from how we support our customer base, which will also contribute to that margin expansion.
Okay. It does seem like consensus is pretty conservative through the end of the decade. Is that fair?
That's fair.
Okay. Just on pipeline, we have about 2 minutes left. You know, can you know anything you can share in terms of the progress you're making to, I know you're not giving specific timing, but just on t:slim X3, Mobi Patch, and then Sigi, it seems like you brought it back into the U.S., so you're making progress there. Just where are you in terms of each of those initiatives?
Sure. I would say we have the most exciting portfolio in diabetes, and we are advancing all of these projects. For t:slim X3, I would not think of it as as bright of a line between X2 and X3 the way that we used to look at it. Think about it as a commitment or a continuation to the t:slim platform. We are excited about that. We just launched Control-IQ Plus on it, especially with its 300-unit cartridge. It makes it particularly well-suited for people living with type 2 diabetes. Just think about that as we are going to continue to enhance that platform.
For the tubeless feature for Mobi, for anyone not familiar with it, it uses the same Mobi pump that's available today, but it has a different cartridge so that people don't use an infusion set and can wear it as a true patch, but still have the ability to take it off. That is actually in the verification testing stage and manufacturing build-up. The information from those two pieces are used in a 510(k) filing. Stay tuned on that. We're moving that forward. Sigi, as you commented to, we're moving the development efforts to San Diego, which is great because we're leveraging R&D from an experience perspective. The same folks who designed and built t:slim, who did Mobi, are now working on Sigi. We're leveraging R&D dollars as well as that expertise as we look to bring that product to market.
Okay, perfect. The Tandem stock has rebounded lately. You guys obviously posted a strong Q1. We talked about that. The stock is still pretty cheap. Leigh, I just wanted to, I guess, you know, hand the floor over to you. Any key messages for investors? Where do you see the most significant upside?
Sure. I would say when you, you know, we've laid out so many opportunities that we have for the business. I think that's the most important thing: many shots on goal. It's not all relying on one thing to occur positively in a really big way. We have more opportunities, I would say, than most of the other companies that you see out there in our space. It goes back to not only new products, but also business model and market expansion for us. When you look at that, I think people aren't yet factoring in those opportunities for us. When we look at, when I look at them, I think, well, what's the biggest one? It's really hard to pick one versus another.
I would say the type two market opportunity, as Susan described, the penetration that we could get there, as well as the pharmacy opportunity and the price benefit we can get there, I think those are two that I would say that excite me as much as anything else.
Great. Very exciting. Thank you so much for being here. Appreciate it.
Thanks for having us.